Pakistan central bank governor resigns

By IBT Staff Reporter On 06/03/10 AT 12:59 PM

June 3 (Reuters) - Pakistan's central bank governor said on Thursday he has stepped down for personal reasons, increasing concerns about political instability as the country faces IMF pressure to reform its economy.

Salim Raza was the second senior policy-maker to quit in Pakistan this year following Finance Minister Shaukat Tarin's resignation in February.

The announcement, made by the Finance Ministry and confirmed by Raza himself, came two days before the unveiling of the 2010/11 federal budget.

Yaseen Anwar, deputy governor of the State Bank of Pakistan and a former executive vice president for London's Kraken Financial Group, has taken over as acting governor, the Finance Ministry said.

One senior government official said the personal reasons cited by the Finance Ministry for Raza's resignation were a cover for a power struggle with the government. Raza's departure had little effect on local stock markets but Moody's rating agency said the move confirmed a view of Pakistani unpredictability.

Although Raza had little direct impact on the budget in his role as central bank chief, Pakistan's financial institutions have been under pressure from the International Monetary Fund to make painful reforms. The IMF wants Pakistan to boost taxes, including the imposition of a value-added tax, and raise electricity prices.

It (Raza's resignation) does not fundamentally change anything ... There are many other sources of anxiety that investors would focus on, said Agost Benard, credit analyst for rating agency Standard & Poor's.

The deciding factor is still whether the fiscal and other reforms that the country has committed to with the IMF are being implemented and whether Pakistan can remain on track.

Though Pakistan's economy has stabilized, volatile local politics, government debt levels and acts of terrorism remain key concerns, Moody's said.

The battle against Taliban and al Qaeda militants as part of the U.S.-led war in neighboring Afghanistan is also a big drain on Pakistan's finances. For more on Pakistan, click [nAFPAK].

In Washington, IMF spokesman David Hawley said Raza's departure will not make a difference in the implementation of the program and we look forward to working with his successor.

RAZA'S REPUTATION FOR HONESTY

Pakistan turned to the IMF in November 2008 for a $10.66 billion emergency loan to avert a balance-of-payments crisis and shore up its reserves. Last month it received the fifth tranche of the loan amounting to $1.13 billion.

Raza, who has a reputation for honesty, was appointed central bank governor in December 2008 and was part of the team negotiating with the IMF.

He repeated to Reuters that he had quit for personal reasons, which was the reason given for his departure in a Finance Ministry announcement.

It starts and finishes there, he said.

But a senior government official said there was more to his departure than met the eye.

There are definitely more than personal reasons to his resignation, said the official, requesting anonymity. There was a tussle going on between him and the government. I cannot divulge the issues, but all was not well.

While acknowledging the resignation could send a negative signal to foreign investors, another senior government official said Raza's exit was prompted by the desire of the new finance adviser, Abdul Hafeez Shaikh, to bring in his own team.

Raza would not have been able to serve out a full three-year term anyway because he would have hit the mandatory retirement age of 65 in the middle of his tenure, the official said.

The announcement was made overnight in an e-mail from the Finance Ministry, which said it had received Raza's resignation letter on May 6.

Raza denied that he had resigned because the government had refused an extension to his term.

I don't know where they got that from, he told Reuters, referring to press reports.

It has gained more than 2 percent this year, outperforming Asia's major markets. But even among risky frontier markets, Pakistan is seen by many investors as a long shot due to its security problems, poor governance, corruption and crippling power shortages.

The resignation of the SBP governor should have no material impact on the markets, especially since most policies are coordinated with donor or multilateral agencies, leaving little room for dynamism by individuals in formulating such policies, said Asad Iqbal, chief investment officer of Faysal Asset Management Ltd. (Additional reporting by Faisal Aziz in Karachi, and Chris Allbritton in Islamabad; Editing by Jan Paschal and Jason Webb) (For more Reuters coverage of Afghanistan and Pakistan, see: here) ((E-mail: sahar.ahmed@thomsonreuters.com; Reuters Messaging: sahar.ahmed.reuters.com@reuters.net; Karachi newsroom: 92-21 3568 5192)) (If you have a query or comment about this story, send an e-mail to news.feedback.asia@thomsonreuters.com)